How Your Neighbors Affect Your Property Value

When you start your home buying journey, one sometimes overlooked tip to consider is that you should be cautious when choosing neighbors in regards to future property values. Now, although you can’t actually choose a neighbor when you already live in a home, you can reconsider buying a house because of existing neighbors; that’s what this tip is all about. A house may look great and have all the features you want, but if it’s the only house on the block that’s in great condition, or there are neighbors that have unkempt lawns, or other visual disturbances, then the property value of that home could decrease after you purchase it, making it a not-so-great investment.

A decreasing property value can make selling your home in the future more difficult or selling for less than what you purchased it for, causing you to lose money in the long run.

According to the Appraisal Institute, a bad neighbor could potentially reduce your home’s value up to 10%. This sort of effect is referred to as external obsolescence; where external factors have an affect on your home’s value, instead of factors on your property that can cause a decrease.

What you should look out for

There are signs to look out for that can determine the direction of which the home’s value will head in the future. Although external obsolescence can have a negative impact on your home, it can be temporary things, so it’s important to do a little research.

Physical factors

This point can seem obvious, but sometimes it’s overlooked because you may consider it to be an easy fix. For example, a neighbor’s unkempt lawn can have a negative impact on your home. The simple solution is to clean it up, add some easy curb appeal, etc. This could be a temporary factor in reducing your home’s value, but if this neighbor has a regularly unkempt lawn, then it may not be so temporary. Some lawns can be in complete disrepair, and the closer these properties are to your home, the more severe of an impact it has on your home’s value. For whatever reason the neighbor is unable to clean up their property, whether they simply don’t have the time or finances, the risk is that it could decrease your home’s value. The more neighbors you have that have the same problem, the more of an impact it will all have on surrounding homes and your property, ultimately affecting property values of an entire neighborhood. Thankfully, many neighborhoods have HOA guidelines that each homeowner has to follow. This can guide homeowners in picking an exterior door color to allowing only a certain number of cars to be kept on your property. You can report an irresponsible neighbor to the local HOA and they’ll handle the situation from there.

Financial factors

If a neighbor has severe financial issues, then an unkempt lawn may be the least cause of concern. A big impact on your home value would be a nearby foreclosure. A study by the New York Times saw a 1.3% drop in home values of homes that were within 300-500 feet of a foreclosed home. The impact can be even more significant if the foreclosed home is also in physical disrepair. If you live in a condo for example, neighbors who don’t pay maintenance fees can have an impact on your unit’s value and the rest of the building because of a lack of desirability of living there by potential homebuyers. Although a foreclosure could have a severe impact on home values, it doesn’t necessarily mean it’s permanent. It’s possible to see things turnaround when you ride it out and wait until the bank or lender sells the home to a new homebuyer.

Ultimately, unsightly yards and foreclosures affect the resale value of your home because they bring down the average home values in the neighborhood.

Legal factors

It’s important to do research of criminal neighbors as well, because a registered criminal or someone engaging in criminal activity could potentially put a dent in your home’s value by 10%. Most communities share lists of homeowners with criminal backgrounds, which you can have access to when looking into different neighborhoods. Other factors aside from the ones listed above could also potentially impact your purchase choices or selling abilities, such as neighbor’s behavior. For example, if a neighbor is disruptive and/or throws loud parties all the time, this could have a negative impact on your neighborhood. There’s no real good way of knowing about these factors when looking for a home though, since you don’t live there yet. But you can ask the current homeowners of the house about neighbors, and although they may likely outline the positives, you can gauge how positive you really see those factors being off your own past experiences or opinion.